The landscape of how wealth is managed is changing, and one of the instruments of change can be seen in the approach to a particular group of customers known as “mass affluents”. Traditionally referring to clients with a lower range of investable assets, this group of investors reflects portfolios in the region of zero to US$750,000. Their investment profile is well-known, involving “off-the-shelf” structured products such as mutual funds or exchange traded funds that lack any customizable features to the investor’s needs. And while mass affluents might not be a highly profitable segment for all wealth managers, they do have high expectations. They see the tailored product offerings for higher net worth investors and are keen to benefit from the same service—with digital solutions, such as robo-advice, making that more possible than ever before. As the advice layer fluctuates, putting pressure on firms’ fee structures, wealth managers need to consider how they can drive more value from their mass affluent relationships.
Trying to satisfy mass affluents’ growing demand for tailored products at a low cost is a challenge (Figure 1)—but one that presents an ideal opportunity for robo-advice. Robo-advice offers customizable levels of information at relatively low cost, and it is gaining popularity among mass affluents. According to Bloomberg, assets under management by robo-advisers are estimated to increase 68 percent annually to about US$2.2 trillion in five years.
Figure 1. The advancement of mass affluent and the direct advice model are eroding the traditional high net worth offering
But there are further complexities—wealth manager roles need to adapt to offer a consistent client experience, while investing in the right technology is crucial to success. Platform investments and a migration strategy must be geared toward the desired client experience. Wealth management advisors could better serve the mass affluent market, while remaining profitable, by using a hybrid advice model and leveraging robo advice platforms to provide more customized investment management solutions. Advisors who use a hybrid model could:
- Become a conduit of holistic financial advice
- Use the financial plan to offer a number of financial service offerings that are outside of core investment management (such as banking, credit cards, tax planning, etc.)
- Make use of robo-advice platforms to construct customized, scalable and low-cost investment portfolios
- Take advantage of the support of digital capabilities and be freed up to add value to clients through personal engagements
In this way, wealth managers can advance their service and product offerings to be more needs-based and reflect changing client preferences. Digital is increasing transparency, and younger investors—accustomed to being hands-on and following their own advice—are taking advantage of fast and cheap ways to make their money work for them. Wealth managers must consider how they can not only attract this growing market segment, but also add value through a combination of personal engagement and digital solutions.
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